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The cost of
doing business
Supporting the self-employed
and small businesses
A report by the Money Advice Trust
#costofdoingbusiness @money_advice @biz_debtline

Money Advice Trust
About the
Money Advice Trust
The Money Advice Trust is a national charity helping
people across the UK to tackle their debts and manage
their money wisely.
The Trust runs National Debtline, offering free, independent
and confidential advice on personal debt over the phone
and online, and Business Debtline, the UK’s only free
dedicated debt advice service for the self-employed
and small business owners.
Through these practical self-help advice services and our
Wiseradviser training programme for debt and money
advisers, last year we helped more than 1.2 million people.
Beyond our frontline activity, we work closely with
government, creditors and partners to improve the UK’s
money and debt environment.
Our Business
Debtline service
Business Debtline is the UK’s only free debt advice service
for the self-employed and small business owners. Last year
Business Debtline helped over 40,000 businesses to tackle
their debts, by phone and online.
Like its sister service National Debtline, Business Debtline
offers practical self-help – empowering businesses to deal
with their creditors and put solutions in place to resolve their
financial difficulties.
After speaking to our expert advisers:
54% of our clients were able to overcome their immediate
problems and continue to trade;
88% of callers felt more in control and knowledgeable
in managing their money following our advice;
86% of callers found that seeking advice on their debts
improved their health and wellbeing; and
95% of those who went on to make agreements with
their creditors have maintained them or completed them
three years on.
Contents
Executive summary 6
1. The economic environment 7
2. The growth in self-employment 9
and small businesses
3. Earning a living 12
4. Managing day-to-day 15
5. Financial resilience 24
6. Banking and borrowing 25
7. Building success 27
8. Our recommendations 29
9. Tips for the self-employed and 31
small business owners
3

Foreword
Foreword
The UK’s small businesses are the heroes of our economy. Whether
it’s the local plumber on hand to fix a leak or the corner shop we pop
into on the way home from work, we all benefit from their success.
That success also has a ripple effect across the UK as small businesses
help to make other businesses tick by acting as contractors or putting
money into the supply chain. They bring choice and opportunity to
us all and it is essential that we nurture these businesses to ensure
they continue to revive our economy. It is therefore vital that the
Government, creditors, regulators and the free advice sector work
together to ensure that Britain’s growing number of self-employed
have the help they need to become a success story and contribute
to our growth.
Recent years have been marked by a notable shift
in employment dynamics, heralding a new and
burgeoning population of the self-employed.
These are our tradespeople, our high-street
heroes and our entrepreneurs, many of whom are
attracted by the flexibility and rewards that can
come from ‘being your own boss’, adding value to
the economy in the process. As a result, the UK’s
self-employed headcount is now approaching five
million, and small businesses employ one third of
the population.
Despite this encouraging new chapter, not all
small businesses are trading successfully, with
some burdened by unmanageable debt. When
someone ventures out on their own, to pursue
their trade or follow their dream, they can’t always
predict the bumps on the road. These businesses,
and their struggles, are often invisible. However,
given the right support, many struggling business
can go on to thrive. It is important that they have a
lifeline to reach out to.
At Business Debtline we see the financial and
personal impact that financial difficulties have on
people. We know first-hand that it is vital small
businesses can access the help and support they
need both to develop the necessary skills to keep
operating, and to manage their finances
effectively. With our advice and support, more
than half of businesses continue trading and get
back on a path to prosperity. For these people
Business Debtline is a ‘light at the end of the
tunnel’, enabling them to support themselves and
their families, and continue to make an invaluable
contribution to the UK’s economy.
We believe the Government, creditors, regulators
and support bodies could do more, working
together, to make sure the self-employed and
other small-business owners can access the
expert support that can often make the difference
between triumph and struggle. By collaborating
we can use our collective voice to make sure that
self-employed people who are struggling to
manage their finances know where to go to get
help. Small businesses are the backbone of our
economy – and we have a duty to give them the
support they need.
Joanna Elson, OBE, CDir
Chief Executive, Money Advice Trust
The cost of doing business: Supporting small businesses and the self-employed. 4

Money Advice Trust
Executive summary
The welcome economic recovery will present opportunities for many
self-employed individuals and micro-businesses to flourish. However,
the situation for some of Britain’s smallest businesses, now employing
33% 1 of the population, remains fragile. Our report, based on the
experiences of 104 of our Business Debtline clients and our expert
advisers, summarises the challenges facing small-business owners
who are finding it difficult to make ends meet. As the numbers in selfemployment
grow, it is vital that we understand their challenges,
as well as celebrating their successes.
1. Our insights
Struggling to cope
• More than one in three small business owners
interviewed drew less than £100 income from
their business each month, leaving them in
a constant struggle to stay on top of their
personal, as well as business, finances.
• More than three quarters reported cutting down
on household spending, with more than a third
of these reducing spending on gas/electricity
and a worrying 74 reporting they were paring
back on food.
• Almost seven in 10 of those who had taken
out a personal loan were using it to prop up
their business, leading to a blurring of business
and personal finances.
High personal cost
• Business difficulties have had a significant
knock-on effect on other areas of small
business owners’ lives, with more than 80
affected by stress, anxiety or depression.
No safety net to fall back on
• The findings also reveal a worrying lack of
financial resilience, with 95 of the Business
Debtline clients interviewed having no savings,
in contrast to the 67% of the wider UK
population who are saving 2 .
• 83 of the small-business owners reported
having no pension provision, comparing
unfavourably to the 53 per cent of the wider UK
population reported to be saving adequately 3 .
2. Our recommendations
We have set out a series of recommendations
throughout the report (and summarised at the
end) for government, regulators, support agencies
and the self-employed themselves. We are concerned
that a lack of any form of financial safety net is storing
up significant personal financial problems in the future.
We believe that by working together we can ensure
there is better policy, solutions and advice available f
or those working in a self-employed capacity.
• Around half of small-business owners interviewed
said they were suffering sleep loss as a result
of problems with their business finances.
1. BIS – Business population
estimates 2014.
2. Scottish Widows,
Saving Report 2014.
3. Scottish Widows,
Pensions Report 2014.
• Almost a quarter reported problems in their
relationships as a result of their business debts.
5

Real stories: Leanne and Martin, the festival caterers
Real stories:
Leanne and Martin, the festival caterers
Martin and Leanne are a husband
and wife partnership whose business
has been providing festival catering
supplies since 2005.
Their small business was owed over
£40,000 in invoices that had yet to be
paid. As a result, they were struggling
with business and personal debts.
Without enough money coming in
they were behind on their domestic
gas and electricity bills, their council
tax, their self-assessment tax and had
a penalty charge notice with bailiffs
threatening them. Most worryingly,
they had mortgage arrears and faced
a possession order.
When Leanne first called Business
Debtline she said she felt totally
overwhelmed by their situation.
With the home at risk and bailiffs
threatening to seize their delivery
van, she was struggling to know what
to do next. They had been hoping
that the monies owed to the business
would be paid, and that they could
clear their priority debts in full.
Unfortunately, this didn’t happen.
As it came into winter, the seasonal
nature of festivals made life even
more difficult. Leanne needed further
emergency advice on getting the
house repossession order suspended
and was questioning whether they
could afford to keep trading.
Business Debtline took time to talk
through her situation and set out a
realistic budget, focusing on how the
business was actually performing
rather than how Martin and Leanne
hoped it would. They also discussed
a longer-term analysis of the business
to take into account low season figures
and suggested that Leanne put money
to one side in good periods to offset
the low season. They also gave advice
on recovering the funds owed.
It took over two years to get the
business back on its feet, but
Business Debtline worked with
Leanne and Martin over that period
to help them get a reduced and
affordable suspended possession
order on their home. They also
helped them to make affordable
payments to keep the van and clear
the other debts.
Martin and Leanne are now
budgeting for the low season months
and the business provides the family
with an income for them to live on.
Business Debtline took time to talk through
their situation and set out a realistic budget,
focusing on how the business was actually performing.
The cost of doing business: Supporting small businesses and the self-employed. 6

Money Advice Trust
1. The economic
environment
The UK economy has been in a sustained period
of recovery over the past few years, to the point
where it is now one of the best performing of the
major global economies. Last year saw growth
of 2.7%, the fastest pace since 2007, representing
a rise from 1.7% in 2013 4 . Forecasts for growth
in 2015 are at or above 2.5% 5 .
This return to growth is also reflected in more
favourable employment figures. For the three
months ending March 2015, there were more than
31.1 million people in work, 202,000 more than for
October 2014 to December 2014, and 564,000
more than a year earlier. The number of people
aged 16-64 and in work also increased from
73.4% to 73.5%, the highest since records began
in 1971. The unemployment rate for the three
months ending in March 2015 was 5.5%, down
from 6.8% for a year earlier 6 .
UK interest rates have remained at 0.5% for
six years now, despite growth in the economy
causing speculation about the prospect of rate
rises. The UK’s inflation rate turned negative for
the first time on record in May as clothing and
footwear prices fell. This is the lowest rate of
Consumer Prices Index (CPI) inflation since
estimates of the measure began in the late 1980s
and means that the cost of living is at a similar
level to last year 7 . Such low levels of inflation
mean that interest rates are likely to continue
to be held at the record-low levels we are currently
seeing for a while longer.
Figure 1
Source:
ONS, GDP growth
UK GDP growth quarter on previous quarter
1.5
1.0
0.5
0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
1990 1995 2000 2005 2010
7

1. The economic environment
While the figures above paint a rosy scene, the
full picture is more inconsistent. The UK economy
grew by 0.3% in the quarter compared to 0.6%
in the last three months of 2014. Whilst the
economy was 2.4% larger than the same period
a year earlier, some analysts are suggesting
we may be entering a temporary slowing of the
economy. The chief economist for the Office for
National Statistics (ONS), Joe Grice, said it was
“too early to say” if this slowdown would persist.
“The dominant services sector remains buoyant
while the contraction has taken place in industries
like construction, mining and energy supply, which
can be erratic.”
Average household incomes returned to prerecession
levels for the first time in 2014-15, but
not everyone is seeing the benefit. For people of
working age, low growth in earnings along with
the impact of inflation, higher taxation and benefit
cuts mean that, for many, their incomes remain
stubbornly below 2007-08 levels. Household
consumption also remains lower than prerecession
levels. As a result, improvements
in living standards have been much slower
to materialise than in previous recessions 8 .
There are also some concerns that as prices start
to fall, consumers may keep hold of their money
in the hope they will fall further. In an economy
so heavily dependent on consumer spending
this could have an impact on growth, and on
small businesses reliant on strong supply chains
and people feeling confident enough to buy.
4. ONS, GDP data.
5. Office of Budget Responsibility,
Economic and fiscal outlook.
March 2015.
6. ONS, UK labour market
statistics. April 2015.
7. ONS, Consumer Price
Inflation. March 2015.
8. Institute for Fiscal Studies
(IFS), Living standards:
recent and future challenges.
March 2015.
The cost of doing business: Supporting small businesses and the self-employed. 8

Money Advice Trust
2. The growth in
self-employment
and small businesses
As the economy has gone through a period
of transition in recent years, the self-employed
and small business sectors have undergone their
own changes.
2.1 The growth in numbers
In 2014, the number of self-employed people in the
UK rose to 4.6 million, its highest level since
records began with 15% of the UK population now
self-employed 9 . Across the European Union, the
UK has experienced the third largest percentage
rise in self-employment since 2009. Whilst these
figures peaked in June 2014, they have fallen off
slightly as the economy has bounced back.
The rise in the UK self-employed population mirrors
a steady growth in small businesses, in particular
non-employing businesses 10 . Since 2000, the number
of businesses in the UK has increased each year, by
around 3% on average. In 2014, there were 1.8 million
more registered businesses than in 2000, an increase
of around 51% over this period. However, the number
of non-employing businesses grew at a much faster
rate, at 68% 11 .
Many of the self-employed also set up as sole traders,
where there is no legal distinction between them as an
individual and the business. It is sole traders who have
been at the forefront of UK business growth, with
almost 200,000 starting up last year 12 . Of the 330,000
new businesses in 2014, 197,000 are thought to
be sole traders.
Figure 2
Growth in numbers in self-employment
Source:
ONS
9. Resolution Foundation,
Just the Job – or Working
a Compromise. May 2014.
10.Note that while some of
the self-employed will
employ staff, many will
work alone.
11. Resolution Foundation,
Just the Job – or
Working a Compromise,
May 2014.
12. ONS, Self-employed
workers in the UK.
August 2014.
13. ONS, Self-employed
workers in the UK.
August 2014.
9

2. The growth in self-employment and small businesses
2.2 Reasons for this growth
Whilst there is much speculation about the cause
of increasing levels of self-employment, key
contributing factors are changing lifestyle choices
and an ageing population. Increasingly, people are
attracted to the rewards that ‘being your own boss’
can bring. The number of over 65s who are selfemployed
has more than doubled in the past 5 years
to nearly half a million. The number of women in
self-employment is increasing too at a faster rate
than the number of men (although self-employment
remains largely male-dominated) 13 .
However, some are driven by less desirable influences
resulting from the long-term impact of the recession.
Redundancies and a lack of suitable employment
opportunities coupled with welfare reforms have
been cited as possible causes. Some reports suggest
that the drop in unemployment figures can partly
be attributed to the increase in self-employment as
people who are struggling to find work decide to set
up on their own. The recent recovery may reverse
this trend. However, at present, there are only limited
signs this is happening and indications are that
permanent structural changes in the nature of the
labour force are here to stay.
Positively, the majority of Business Debtline clients
taking part in our research became self-employed
from personal choice. However, for a minority,
redundancy and little prospect of work on the
horizon had forced them down the route of setting
up their own business. Many of these people said
they felt trapped in this position, finding it hard to
make ends meet.
2.3 Self-employment around the UK
Unsurprisingly, the picture varies across the country,
with the South East, North West and West Midlands
experiencing the highest growth in self-employed
workers.
Calls to Business Debtline reflect the numbers of
self-employed in these areas, with one in five callers
based in the South East and one in ten from each
of the other regions with high concentrations of
self-employed people.
Proportion of callers to Business Debtline
by region 2014
Region
% of Business
Debtline callers
by region
% of all workers
who are selfemployed
Growth in % of
self-employed
since 2008
South East
20
15.8
2.0
London
11
17.3
2.0
North West
11
13.5
1.9
West Midlands
11
13.7
1.9
South West
10
16.6
1.5
Yorkshire and
Humberside
8
6
12.5
0.7
East Anglia/
East England
6
15.0
0.9
East Midlands
6
12.1
1.0
Figure 3
North East
Wales
5
5
12.1
14.1
1.0
1.1
Source:
ONS and Business Debtline,
all callers, 2014
Scotland
4
11.5
0.9
The cost of doing business: Supporting small businesses and the self-employed. 10

Money Advice Trust
Real stories:
Jessica, the clothes seller
Jessica contacted Business Debtline
on behalf of her husband, a sole trader
who had been selling sports clothing
and equipment from home for
18 months.
They had been married for 5 years,
with two children. Her husband lost
his job at the height of the recession
and found it difficult to get another
job. He also began to struggle with
his mental health making it difficult
for him to continue working as a
delivery man. In Jessica’s words her
husband became ‘unemployable’
and he felt his only option was to set
up a business from home.
His income now was extremely low.
They had never experienced debt
problems before and Jessica
explained she was finding their
situation very stressful. She worked
full-time and her income had been
covering most of the family’s costs.
When her husband become unwell she
had to reduce her hours and benefits
didn’t stretch far enough to cover the
remainder of the household bills.
She and her husband had mortgage
arrears of £2,800 and secured loan
arrears of £1,600, as well as £17,000
of credit debts. She had a debt
management plan for the credit
debts and had been able to get
arrangements in place to repay the
mortgage but not the secured loan.
At first Jessica didn’t see the benefit
of doing a business budget as the
income coming from her husband’s
self-employment was so low. Jessica
explained that she felt selfemployment
had been forced on her
family and she couldn’t see any future
for the business.
Business Debtline helped her to
see why it was important to assess
whether the business was viable, and
that doing a business budget would
help with this. She could also then use
the budget when making offers on her
secured loan.
Jessica still feels concerned about the
business but she feels that she has a
better understanding of the finances.
They have decided that the business
is viable enough to continue to trading
for the time being and will review the
budget regularly to make sure this is
still the case.
Business Debtline took time to talk through
their situation and set out a realistic budget,
focusing on how the business was actually performing.
11

Earning a living
3. Earning a living
3.1 Turnover
Many of the UK’s self-employed and microbusinesses
are thriving as the recovery continues to
gather pace. For the ‘success stories’ this translates
to a year of growth in 2014 and an expectation of
improved business performance in the first quarter of
2015 16 . More small to medium-sized businesses with
at least one employee increased their turnover in the
last 12 months compared to the preceding year with
78% reporting they made a profit or surplus, back to
2007 and 2008 levels and up 6% on 2012 17 .
However, for some the picture is less optimistic. At
the end of 2014, 7.9% of surveyed business owners
expected to downsize, close or hand their business
over in the next 12 months, slightly up from 7.6% at
the end of 2013 18 . At Business Debtline, we witness
first-hand the specific challenges those who struggle
to make a living from self-employment face.
More than 1 in 10 Business Debtline
callers who took part in the survey have
a business that is trading at a loss
Percentage of callers to Business
Debtline in 2014 by trade
3.2 Variations between sectors
With confidence levels amongst small businesses
generally up on last year, there is encouraging growth
in a number of sectors. The UK services industry has
entered a period of growth with activity and new
business accelerating by 0.5% in the first quarter of
this year. However, this growth was offset by a 1.6%
fall in the pace of economic output in construction.
The UK services sector now accounts for around
three quarters of economic growth, with construction,
manufacturing and production accounting for the
remaining quarter 19 .
Services (53%)
Retail (19%)
Manufacturing (1%)
Finance/Insurance/Real Estate (4%)
Construction (9%)
Agriculture/Forestry/Fishing (1.5%)
Other/Not Given (8%)
Wholesale (0.5%)
Transportation (4%)
Despite this growth, half of the people Business
Debtline helped in 2014 were in service-based
industries, suggesting not all businesses in this
sector are thriving.
Figure 4
Source:
Business Debtline,
all callers 2014
16. Federation of Small
Businesses, Small
Business Index,
Quarter 4, 2014.
17. Business Innovation and
Skills, Small business
survey, March 2015.
18. Federation of Small
Businesses, Small
Business Index,
Quarter 4, 2014.
19. ONS: Gross Domestic
Product preliminary
estimate, Q1
(Jan to Mar) 2015.
The cost of doing business: Supporting small businesses and the self-employed. 12

Money Advice Trust
3.3 Earnings
Despite the welcome upturn in the climate for
many of the UK’s successful businesses, the
divide between the incomes of those who are
self-employed compared to employed people in the
UK is widening. On average, self-employed people
earn 40% less than a typical employed person and
their incomes have dropped much further than for
those who are employed 20 . The average income
from self-employment in the UK has fallen by 22%
since 2008/09 21.
Self-employed people are also not protected by the
minimum wage. Perhaps unsurprisingly, many of
the Business Debtline callers we surveyed take an
income from their business that falls well below the
level of this safety net.
More than a third of the Business Debtline
callers surveyed earn less than
£100 a month from their business.
Over two-thirds of the Business Debtline callers we
surveyed have other sources of income coming into
their household and a significant proportion are not
the sole earner in the household. Over half receive
benefits and just under half get tax credits, whilst
a smaller number supplement their income with
a part-time job.
These issues can be further exacerbated by the
challenges of operating a business. Our advisers
report that many callers to Business Debtline need
support to do a business budget and calculate their
turnover and profitability. This can be for a range of
reasons, including the fact that the business is a new
start-up or because the work is sporadic or seasonal
in nature. Factors such as the apparent complexity
of doing tax returns have also made ‘sorting out the
books’ seem even more overwhelming, especially
for those unable to pay for the services of an
accountant to help them. The announcements in
this year’s budget to abolish annual tax returns in
favour of a ‘real-time’ process are welcome, and we
hope that the new process will make it less onerous
for our businesses.
Our experience of helping clients shows us that there
is also a significant gap in the provision of support
to enable people to acquire the skills necessary to
operate their business finances. This means that
some people start trading without an understanding
of the basic skills needed. They may also not have
a grasp of what to do to prepare ahead, including
some of the ‘ground work’ they need in place to
ensure that their business has the best possible
change of success. Without this, there is a risk
that they will be less likely to have a grasp of their
finances, and subsequently less likely to spot their
financial difficulties until their situation has become
more extreme.
Figure 5
Median self-employed incomes 2002/03 – 2012/13
Source:
ONS, Self-employed workers
in the UK. August 2014.
600
400
After adjusting for inflation the median income (the value
where half earn less and half earn more) from self-employment
decreased by 22% since 2008/09
Median
per
2012/13
£207
week
200
20.Resolution Foundation.
Just the job – or a
working compromise?,
May 2014.
21. ONS, Self-employed
workers in the UK.
August, 2014.
Self-employment income is generally underestimated in surveys
since their income generally comes from a wide variety of different
sources which can be difficult to recall exactly
0
2002/03
2004/05 2006/07 2008/09
2010/11 2012/13
Note - The graph shows the median income for each year after taking into account inflation
13

3. Earning a living
3.4 Working hours
The Working Time Directive sets out in law that
employed people do not usually have to work more
than 48 hours a week on average. However, there is
no similar protection for the self-employed and over a
quarter of the Business Debtline clients we surveyed
are regularly working more than 50 hours a week and
almost 8% are working over 70 hours a week. Despite
this, a significant number of those surveyed report that
they feel under-employed and do not feel they are
working enough hours to be able to make ends meet.
There are suggestions that self-employment takes
some of the pressure from unemployment levels,
resulting in fewer people being counted amongst
those without a job. In addition, where people remain
underemployed for prolonged periods of time, it may
be a sign that the economy is weaker than anticipated,
with the problem masked by the buoyant selfemployed
figures.
Over a quarter of the Business
Debtline callers we surveyed
are working more hours
than the 48 hours the
UK Working Time Directive sets
out for those who are employed.
Recommendations
Support with real-time accounting
While we welcome the abolition of the annual tax return announced
in this year’s Budget and the modernisation of the tax system, this
will be a significant upheaval for the self-employed. It is vital that the
Government ensures that the self-employed are given the advice they
need to manage this transition to real-time accounting, and that any
penalties for missed deadlines are proportionate.
Improve data in official statistics on self–employed incomes
Self-employed workers are not included in most official income
statistics. With close to 5 million people self-employed, it is vital
that comparative and timely data on average incomes of this
group is captured to inform policy making. The move to real-time
Improve access to support and information
Despite the availability of some advice for businesses, it is evident from
our experience that some people are still starting a business without
the necessary background skills to be able to operate it effectively.
The ‘I’m a good plumber but useless at paperwork’ approach stores
problems up which inevitably rise to the surface further down the line.
Since the demise of Business Link, efforts have been made to
make information available to help self-employed people (for
example via GOV.UK and Great British Business). However, this
does not sufficiently replace what was lost and more needs to be
done to provide and promote the availability of free, independent
advice and support to help people throughout the life-cycle of
their business.
Percentage of employees and self-employed by the number of hours
they usually work, April-June 2014 UK
Employees
Self-employed
Figure 6
Source:
ONS, Self-employed workers
in the UK. August 2014.
8 hours
or less
8 to 30
hours
8 hours
or less
8 to 30
hours
5% of self-employed
people work 8 hours or
less per week compared
to 2% of employees
45 to 60
hours
60 hours
or more
30 to 45
hours
35% of self-employed
people work more
than 45 hours per
week compared to
23% of employees
45 to 60
hours
60 hours
or more
30 to 45
hours
The cost of doing business: Supporting small businesses and the self-employed. 14

Money Advice Trust
4. Managing day-to-day
22. Dept for Business,
Innovation and Skills,
Small Business Survey
2012 and Business
Population Estimates.
2012.
23. https://www.gov.uk/
government/publications/
the-home-businessguide
24. GOV.UK, Backing for
home-based business.
August 2014.
Many self-employed and micro-businesses will
prosper as the economic recovery continues.
For these successful businesses, recent trends
herald a welcome upturn in trade and increased
confidence. It is vital that the Government
continues to focus efforts on ensuring these
growing businesses have the help and support
they need to continue to thrive, and we welcome
the range of initiatives introduced to achieve this.
However, it is also vital that there is a safety net to
help those businesses for whom the economic
recovery has not brought about prosperity. As the
self-employed population grows, becoming a bigger
and more integral part of our economy and society,
we need to ensure we fully understand the changing
make-up of this population and the drivers behind its
growth. Most importantly, we need to understand
the financial opportunities and risks, how people are
managing day-to-day and make sure guidance and
support are responsive for those at the vulnerable
end of the spectrum.
4.1 Working from home
Many micro and small businesses will not operate out
of business premises, instead using their home as
a base. In 2013, there were 2.9 million home-based
businesses; an increase of nearly half a million since
2010. They contribute in the region of £300 billion
to the economy 22 . Whilst operating from home has
many benefits, including removing some of the costs
involved with acquiring a separate business premises,
it also has a number of implications. These range from
the need to notify any mortgage provider or landlord,
home and contents insurance and to taxes including
business rates, and Capital Gains Tax if the property is
later sold. Other cost implications such as increased
gas and electricity bills, and appropriate liability
insurance where customers visit the premises also
need to be considered.
Navigating the legal and practical requirements
in setting up at home can be difficult and in
acknowledgement of this the Government published
a Home Business Guide which set out the legal
position 23 . In August 2014, a package of measures
including updated business rates and planning
guidance was also announced with the aim of making
it easier to start and run a business from home 24 .
However, it is clear that awareness of information and
support amongst those choosing to run their business
from home is patchy and more needs to be done
to ensure that it is reaching the intended audience.
4.2 Debts
The day-to-day challenges in trading that some
businesses face are illustrated by the significant
changes we have seen to the levels of debt Business
Debtline callers are now struggling to repay. Our
clients are accessing lower levels of credit but finding
that their finances are squeezed to such a degree
that even these are becoming unmanageable. The
proportion of our callers finding it hard to repay
relatively low-level debts of £5,000 or less doubled in
2014 when compared to 2010. Those owing £10,000-
£15,000 also increased and now account for almost
20% of our callers.
However, whilst those businesses owing £30,000-
£50,000 have diminished, they still account for over
10% of callers in 2014, as do those owing £50,000-
£100,000. Similarly, having peaked at 9% in 2011,
those owing £100,000 or more plateaued in the
following two years before showing a slight drop
to 7% this year. This indicates that, for some
businesses, high levels of unmanageable debt
continue to be a burden.
The proportion of Business
Debtline callers struggling
with debts of less
than £5,000 doubled in 2014.
15

4. Managing day-to-day
The proportion of callers to Business Debtline
with problems paying their utility
bills has almost quadrupled
since 2010.
Proportion of callers to Business Debtline with debt levels from £0-£100,000+
20
Figure 7
Source:
Business Debtline,
all callers 2014
15
10
5
0
2010
2011 2012 2013 2014
£100k+
£30-£50k
£10-£15k
0
£50-£100k
£15-£30k
£5-£10k
Recommendation
Continue to encourage a supportseeking
culture
We would like to work with business support
organisations to pro-actively encourage
self-employed people to seek support and
advice throughout the life cycle of their business.
In particular, we would like to ensure that those
experiencing financial difficulty are signposted to
Business Debtline to get the help that they need
to tackle their debts and manage their finances.
The challenges of operating a successful and
profitable small business, coupled with the rising
cost of living have left many of those surveyed
unable to meet basic costs despite cutting back
on their expenses.
In an attempt to keep up with their bills, some people
start to use personal credit such as a credit card to
pay for day-to-day essentials like food. This practice,
combined with the use of personal credit to cover
business expenses, such as paying for suppliers, c
an leave people saddled with unmanageable debt.
In 2014, over 20% of Business Debtline callers
reported difficulties repaying personal debts. This
suggests there is clearly a tipping point past which
reducing spending and using credit ceases to have
an impact. After this point, people begin to fall behind
with their essential bills and credit payments.
The proportion of callers to Business Debtline
reporting problems with their utility bills has almost
quadrupled since 2010 25 . During this time, the
increases in the cost of both gas and electricity,
as well as many other business expenses, left
many unable to keep up with payments.
Concerns have been expressed over an unequal
playing field for small businesses compared to
domestic utility customers. The ‘big six’ utility
companies have promised better support for
25. Note that some of this
increase is accounted
for by increased referrals
by energy companies
to Business Debtline.
The cost of doing business: Supporting small businesses and the self-employed. 16

Money Advice Trust
Real stories:
Haroon, the local grocer
Haroon runs a local grocery store
based in London. He leases the
business premises and his wife
works there part-time too. When
he contacted Business Debtline his
business was relatively new and had
been trading for 15 months. He had
multiple personal debts, but only
one business debt for electricity
arrears of £3,000. The business
had trading assets, but did not
have the funds available to clear
his electricity arrears in full.
There had been a few issues with the
electricity supply. The business was
originally placed on the wrong tariff,
which was much higher than Haroon
had expected. He got behind with
his payments and although the error
with the tariff was corrected, he
struggled to catch up.
He originally agreed a repayment
amount for the money owed with the
electricity company, but it was too
high and he failed to make most of
the payments. By now, his electricity
supplier was threatening to
disconnect him. This would have
meant the business could no longer
trade; frozen or chilled stock would
be destroyed and the family would
be left without an income.
Business Debtline provided Haroon
with advice on strategies to deal with
the electricity debt and focused on
working out an affordable repayment
he could stick to. Completing an
income and expenditure analysis for
the business was essential to check
that the business was viable and to
assess what he could draw against
the business as income.
As a result Haroon made another
offer of repayment to the supplier
which was accepted and he has
been able to make additional
payments on top to try to repay
the debt off quicker. He is hoping
to clear it within three months.
Business Debtline provided Haroon with advice on
strategies to deal with the debt and focused on working
out an affordable repayment he could stick to.
17

4. Managing day-to-day
businesses by stopping the practice of automatic
rollover contracts, (the practice of requiring advance
notice in writing to terminate a contract and avoid
automatic renewal, potentially at an uncompetitive
tariff). However, there is still some way to go to ensure
that the self-employed are treated in the same way as
domestic customers. This includes improved tariff
information and pricing transparency to make price
comparison and switching easier, and passing on
the benefits of energy tariff reduction to business
customers and not just domestic customers.
These issues can be further exacerbated by the
challenges of operating a business. Our advisers
report that many callers to Business Debtline need
support to do a business budget and calculate their
turnover and profitability. This can be for a range of
reasons, including the fact that the business is a new
start-up or because the work is sporadic or seasonal
in nature. Factors such as the apparent complexity
of doing tax returns have also made ‘sorting out the
books’ seem even more overwhelming, especially for
those unable to pay for the services of an accountant
to help them. The announcements in this year’s
budget to abolish annual tax returns in favour of a ‘realtime’
process are welcome, and we hope that the new
process will make it less onerous for our businesses.
Our experience of helping clients shows us that there
is also a significant gap in the provision of support to
enable people to acquire the skills necessary to
operate their business finances. This means that
some people start trading without an understanding
of the basic skills needed. They may also not have a
grasp of what to do to prepare ahead, including some
of the ‘ground work’ they need in place to ensure that
their business has the best possible change of
success. Without this, there is a risk that they will
be less likely to have a grasp of their finances, and
subsequently less likely to spot their financial
difficulties until their situation has become more
extreme.Small businesses taking part in a recent
survey which showed that two thirds (65%) thought it
was difficult to switch energy supplier. Amongst those
who attempted to switch, the biggest problems cited
were unclear notice periods, complicated contract
terms and the speed of the switching process 26 .
The level of priority business debts amongst Business
Debtline clients is significant. Over 7% owe money to
HMRC and 4% are struggling with business rates or
council tax debts. Others owe money on business
mortgages, business leases and business utility bills
as well as to suppliers. These debts are particularly
critical as many impact on whether the business can
continue to trade.
Recommendations
Review the business rates regime
We welcome the current review of the business rates regime. It is
crucial that the review considers how the rates system can be used
to better support small-business owners who are struggling,
including those in temporary difficulty. For example, many councils
run hardship relief schemes, but there is a need for greater provision
of rate relief to help businesses weather rough periods of trading.
Extend creditor best practice to include small businesses
In recent years there have been many improvements in the way
creditors approach debt and financial difficulty, but too often small
businesses receive different and less positive treatment for no good
reason. There now needs to be a focus on ensuring that best practice
approaches are applied to small-business customers wherever
possible. Precipitate creditor action can jeopardise the survival of
viable businesses, leading to detriment all round. In particular, priority
creditors such as utility suppliers and HMRC should ensure that they
take into account individual circumstances, base debt repayments on
affordability and develop proactive approaches to financial difficulty.
More than 1 in 10 Business Debtline callers
surveyed owe more than £20 in business debts
for every £1 they earn in a year. Some reported
having business debts of more than
40 times the annual income they take
from their business.
26. Federation of Small
Businesses, Small
Business Survey.
May 2014.
The cost of doing business: Supporting small businesses and the self-employed. 18

Money Advice Trust
Real stories:
John, the builder
John is a builder based in Sheffield.
He set up his limited company three
years ago using his savings and
had been trading successfully
before one of his largest customers
stopped paying.
As a result of this advice John was
able to agree an offer of repayment
with his supplier and is also seeking
legal advice about pursuing the
money from his late-paying
customer through the courts.
The customer owed John over
£20,000 and with a hole in his cash
flow he began to fall behind with
payment to his suppliers. At the time
he called Business Debtline he owed
his main supplier over £15,000. At
that point they had refused his offers
of repayment and threatened him
with a compulsory winding-up order
through the courts.
Business Debtline helped John to
complete a business budget and
found that he could afford to make
an offer of repayment to his supplier
that would clear the debt within six
months. They advised him about
how to put the offer to the supplier
and provided sample letters to help.
They also told him about recovering
the money his customer owed him
by going through the courts.
Business Debtline helped John to complete
a business budget and found that he could
make an offer of repayment to his supplier to clear the debt.
19

4. Managing day-to-day
If creditors do threaten legal proceedings to secure
payment, a business owner usually has two options:
try to save the business while attempting to settle
outstanding accounts or allow the business to fail
by implementing an exit strategy that minimises
the financial consequences. In Scotland, however,
the Government has legislated for a new formally
recognised debt support tool for businesses that
allows small businesses to fulfill their obligations
to creditors and continue to trade 27 .
The amount of money owed to their suppliers by
the self-employed and micro-businesses that are
in financial difficulty is only one side of the coin.
Many clients are in the position where their business
is owed money for the goods and/or services they
have supplied to others. For small businesses in
particular these debts can be crippling and create
a cycle of problems relating to cash flow
The amount of money owed to their suppliers by
the self-employed and micro-businesses that are
in financial difficulty is only one side of the coin.
Many clients are in the position where their business
is owed money for the goods and/or services they
have supplied to others. For small businesses in
particular these debts can be crippling and create
a cycle of problems relating to cash flow.
Evidence suggests that this is indicative of a
wider problem in the UK, with estimates that 76%
of businesses are forced to wait three months or
more for payment. This results in over a quarter
(26%) becoming reliant on an overdraft to make
ends meet 28 . SMEs are owed £39.4 billion in
overdue bills compared to £6.7 billion owed
to large firms. One in four felt that if the amount
owed to the business increased to £50,000
or more, they would be facing bankruptcy 29 .
Those businesses offering their own customers
trade credit are similarly impacted with a quarter of
businesses taking part in an SME survey reporting
that this meant they had an increased need for other
forms of external finance 30 .
Recommendations
Explore options to develop new debt support solutions
for small businesses
The Business Debt Arrangement Scheme in Scotland allows debts,
such as VAT and PAYE arrears, as well as debts to other creditors,
to be repaid while a business maintains the on-going credit facilities
which are often essential for survival. Under the terms of the scheme,
monthly payments are agreed, and creditors must freeze interest and
charges and cannot take further action to enforce payment of the
debt. The scheme also protects assets, including the family home.
It is reviewed annually and can last up to 5 years. We recommend that
the impact of this scheme is monitored, and options to create a similar
scheme for England, Wales and Northern Ireland are explored.
To combat suggestions that the Government and
local authorities are amongst the worst offenders for
late payment, the Government has set out measures
to strengthen its Prompt Payment Code. This
voluntary code currently has over 1,700 businesses
signed up to it and promotes a 30 day standard
payment limit with a commitment to make all
payments within 60 days. The code is intended to
compliment tougher reporting laws which require
the UK’s largest firms to publish their payment terms.
A code compliance board has the remit to use this
data to check the performance of code signatories
and consider ‘naming and shaming’ late payers.
The causes of late payment are also complex and
may not stem from an intention to delay the release of
monies but instead be the result of internal payment
practice inefficiencies within organisations. Whilst
this does little to ease the burden that such problems
put on the small- business owner, having a better
understanding of the causes of late payments may
help when seeking effective solutions to tackle them.
In addition, the problem can be further exacerbated
by the understandable focus of small businesses
on securing and renewing contracts at whatever
cost. This may lead some to enter into agreements
without fully considering or attempting to negotiate
reasonable contractual payment terms. Raising
awareness of this issue amongst new and existing
business owners, and considering the feasibility of
measures such as a ‘fair contractual payment terms’
standard could help to address these problems.
27. This applies to legal
entities e.g. partnerships,
limited partnerships,
trusts and charities.
28.BACS news release,
Late payments are
forcing businesses to
make tough decisions.
February 2015.
29. BACS news release, UK
businesses face a late
payment burden of
46.1 billion . July 2014.
30. BDRC Continental,
SME finance monitor
Q4.2014.
The cost of doing business: Supporting small businesses and the self-employed. 20

Money Advice Trust
Recommendations
Tackle late payments
We welcome the Government’s plans to
consult further on measures to tackle late
payment by large firms. We know that late
payments can have a devastating impact on
those small businesses least equipped to cope
with the resulting cash -flow problems. The
proposals to oblige large and listed companies
to publish detailed information about their
payment practices will hopefully take a step
towards achieving this. However, businesses
and public bodies are free not to sign up to the
voluntary Prompt Payment Code, weakening
the intentions behind these measures. We
would like signing up to the code to become
mandatory rather than voluntary. We would
also like to see penalties for breaching the
code, including the automatic application of
interest in the case of late payment. In addition
we would like to see the Government require all
public sector agencies to pay invoices
promptly with penalties for failing to do so.
We would also like consideration to be given
to ways of empowering business owners to
reduce the likelihood of late payment by
helping them to improve their contracts
nd factor in reasonable contractual payment
terms. This needs to include raising
awareness of the need to do this when
negotiating contracts, and considering a ‘
fair contractual payment terms’ standard.
Whilst it is encouraging to see that this issue is being
given an increasingly high profile, it is clear that more
can be done to tackle the crippling impact of late
payment on business, including commissioning
an independent review to look at further measures 31 .
4.3 Cutting back
A significant number of the people contacting
Business Debtline who took part in the survey reported
cutting back on essential household expenditure such
as energy bills and food in an attempt to make ends
meet. Others had started to reduce spending on other
areas including clothing and holidays.
Over a third of those surveyed reported cutting down
on gas and electricity usage and over 70% reducing
their spending on food. Given that many of those
surveyed had one or more children in their household,
the impact of running a struggling business on
day-to-day family life becomes clear. Some callers
explicitly expressed concern over the more direct
effect their financial situation was having on their
children. This included no longer being able to afford
to pay for children to go to out-of-school clubs and
pursue hobbies, or to take them on family outings.
The percentage of Business Debtline clients
surveyed who cut back on spending
80%
70%
60%
50%
40%
30%
20%
31. Federation of Small
Businesses, February
2015.
Figure 8
Source:
Source: Business Debtline
client survey
10%
0%
Gas and/
or
electricity
Food Clothing Holidays Going out Other
21

4. Managing day-to-day
Recommendation
Encourage energy suppliers to pass on
savings to business customers as well
as domestic customers
When energy customers announce that they
are passing on reductions in wholesale prices
to their domestic customers, all too often small
businesses fail to reap the benefit. Energy
companies’ failure to pass on cost cuts to
domestic customers often makes big news
but the same unfair treatment afforded to
small business customers receives little
attention. We would like to see small
business consumers treated in the same
way as domestic customers, with reductions
in wholesale costs being passed on through
lower energy bills.
4.4 The personal cost
The effects that being in debt can have on health and
well-being are well documented. In particular, there
is evidence of a link with mental-health problems
which can include anxiety and depression. Some
studies suggest that one in two adults with debts has
a mental health problem and one in four people with
a mental health problem are also in debt 32 .
A worrying proportion of those Business Debtline
callers who took part in our survey reported suffering
from a range of issues relating to their debt problems,
including more than half losing sleep and many
suffering from stress and anxiety. The stress and
worry of debt also took its toll on the relationships of
those surveyed. Almost a quarter said that they were
experiencing relationship problems as a result of their
debts. More specifically, individual clients reported
issues ranging from suicidal feelings, stress-induced
vertigo and significant weight loss as a result of
anxiety and a lack of money to buy food. Commonly,
clients said that the worry of their debts meant that
they were unable to focus on their business, thereby
exacerbating the problems they were facing,
These issues can create havoc with peoples’ home
lives making it harder for them to cope with their debts
and trapping them in a cycle that can feel hard to break.
Percentage of Business Debtline clients surveyed
reporting personal problems as a result of their debts
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Loss of sleep Stress / anxiety /
depression
Relationship problems
Other personal
problems
Figure 9
Source:
Business Debtline
client survey
32. Royal College of
Psychiatrists and Money
Advice Trust, 12 Steps
for treating potentially
vulnerable consumers.
November 2014.
The cost of doing business: Supporting small businesses and the self-employed. 22

Money Advice Trust
Real stories:
Terry, the B&B owner
Terry is a sole trader, based in the
North who runs a B&B. He also lives
there with his 12 year old son who he
fostered 3 years ago. He is a long-term
trader having been in the business for
22 years.
He had an unforeseen injury 12
months ago and was forced to
temporarily stop working due to his
immobility. He employs one full-time
and two part-time staff but this was
not enough to cover his absence and
he was forced to reduce the number
of guests he took at any one time. As
a result he had lost around £25,000 of
turnover.
Terry had been substituting the lost
earnings with his savings, but these
quickly ran out, leaving him without a
safety net. He is now recovered and
working full-time but has gas arrears
of £3,000, business rates arrears of
£1,500 and VAT arrears of £7,000 as
well as £21,000 owed on credit cards.
He had been trying to make
payments here and there, especially
on the credit card debts.
It was important that Terry started to
tackle his priority debts and Business
Debtline therefore told him that he
needed to deal with his business rates,
VAT and electricity debts first because
he has an ‘open door’ business which
means he was particularly vulnerable
to bailiff action from these creditors. In
addition, the gas supplier didn’t need a
court order to disconnect the business
supply and this would stop him trading.
Business Debtline helped Terry with a
business budget and advised that as
the business started to pick up again
the budget should be reviewed. They
checked that the business could now
cover its running costs and pay
towards its debts, and helped him to
work out what he could afford to offer.
It is difficult to find any trust funds to
help with business utility debts, but
Business Debtline did manage to find
a foster care charity to see if they
could offer any short-term financial
assistance with his son.
Terry had been substituting the lost
earnings with his savings, but these
quickly ran out, leaving him without a safety net.
23

5. Financial resilience
5. Financial resilience
Many self-employed people do not have a financial
safety net to fall back on, leaving them in a precarious
position. Savings, in particular, are a key part of
achieving short, medium and longer-term financial
resilience. As well as a lack of resilience against
unforeseen life events, the lack of any saving
provisions can signify a longer-term problem
as retirement approaches. With the number of
self-employed people in the UK growing this could
be storing up a ticking time bomb for the future.
5.1 Savings
The Business Debtline
callers we surveyed are almost
three times less likely
to have any savings compared
to the wider UK population.
Callers to our helplines could benefit greatly from
having a small savings pot to provide a cushion when
they hit a difficult period. 91% of the self-employed
callers we surveyed have no savings. This is in
stark contrast to the wider UK population where
a report suggests 67% of people are saving 33 .
Of the few Business Debtline callers who had
managed to save some money, over a third had
savings totalling less than £1,000 which is not enough
to cover even the combined monthly mortgage and
council tax bill for the average household. This leaves
these households vulnerable to income shocks such
as a cut in hours, ill-health, relationship breakdown or
bereavement. It also leaves them exposed when it
comes to covering rising bills such as the anticipated
mortgage interest-rate rises.
Our advisers also increasingly receive calls from
individuals who have a deficit budget - where their
income does not match their regular expenditure.
When this happens, people are forced to cut back on
their essential outgoings and savings can be one of
the first things to be hit. Any past savings can quickly
become depleted as they try to make up the shortfall
in their incomes, putting them at greater financial risk.
5.2 Pensions
For self-employed people, saving into a pension can
be a more difficult habit to develop than it is for people
in employment. There are no employer contributions
and irregular income patterns can make regular
saving difficult.
Self-employed people are entitled to claim the basic
state pension in the same way as anyone else.
However, qualifying for the full amount requires
thirty years of National Insurance contributions
which can be difficult for some people to achieve.
In addition, the basic state pension is unlikely to
provide people with anything like their current
standard of living on its own. This makes it crucial for
people to plan how to provide for their retirement 35 .
It is estimated that a single pensioner needs at least
£8,600 a year to reach a minimum socially-acceptable
standard of living, whilst a retired couple needs an
annual income of more than £12,500. However, the
basic state pension is equal to just £5,881.20 for an
individual or £11,762.40 for a couple 36 .
From 2016, the Government plans a single-tier state
pension which will include self-employed people.
However, there is no intention to include an element
of auto-enrolment as there is for employees. This is
likely to widen the gap between the employed and
self-employed further.
As a result, many current or potential callers to
Business Debtline will be in a position where they have
insufficient means to live comfortably when they come
to retire.
80% of the Business Debtline callers
surveyed have no pension compared to
53% of the wider UK population reported
to be saving adequately 34 .
33. Scottish Widows,
Savings Report 2014.
34. Scottish Widows,
Pensions Report 2014.
35. Money Advice Service
36. Joseph Rowntree
Foundation. 2014
The cost of doing business: Supporting small businesses and the self-employed. 24

Money Advice Trust
6. Banking and borrowing
37. Bank of England news
release. December 2014.
38 Federation of Small
Businesses, Voices of
Small Business Index
Q4. 2014.
In 2014, loans to small and medium-sized enterprises
(SMEs) increased by £0.1 billion, compared to the
average monthly decrease of £0.4 billion over the
previous six months. The Bank of England and HM
Treasury announced a one-year extension to the
Funding for Lending Scheme (FLS) in December
2014. This is intended to provide lenders with
continued certainty over the availability of cheap
funding to support lending to SME’s during 2015.
This is part of a package of support introduced by
the Government including proposals in the Small
Business, Enterprise and Employment Bill to
mandate greater sharing of SME credit information
and to require banks to share details of SMEs which
have been declined finance. This works alongside the
Bank of England who are considering the widening of
access to credit data to support the provision of credit
to SMEs through non-financial intermediary channels,
such as trade credit 37 .
However, evidence suggests that the credit market
remains challenging for some small businesses, many
of whom find that they are refused credit. According to
a recent survey, up to 43% of businesses applying for
credit in the last quarter of 2014 were rejected 38 .
The credit picture for Business Debtline callers
reflects the difficulties the self-employed face
more widely when trying to access credit. Overall,
the numbers applying for credit remain low,
rejections are common and we are continuing to
see evidence that people are using personal credit
to pay for business costs as a result of the lack of
access (either real or perceived) to business credit.
Of those Business Debtline clients we surveyed who
were taking out personal credit for business use; the
reasons included consolidation of existing business
debts or to clear a bill from HMRC. A smaller number
of those surveyed had applied for business credit
but, of those, few had their applications accepted.
When considering banking facilities, some
small-business owners can successfully operate
using personal banking facilities including basic
bank accounts rather than requiring businessspecific
accounts. However, difficulties can arise
if they rely on the same account for both their
home and business finances which can contribute
to a ‘muddying of the waters’. New businesses
in particular can start trading by mixing-up their
business finances with their personal money.
Whilst this may seem a quick solution in the shortterm,
it can lead to troubles later down the line.
There is a risk that money for household costs will be
swallowed into the business, leaving people without
the money to cover essential bills like housing costs,
council tax and heating. It can also make it hard for
people to calculate the finances for their businesses
as money gets absorbed into one pot, making it even
more complicated to work out tax returns.
25

6. Banking and borrowing
Being self-employed can also impact on the
availability of other types of credit or borrowing which
can have far-reaching consequences. Getting a
mortgage or providing proof of a stable income to
a letting agent in order to be able to rent a property
can also be harder for self-employed people.
Recommendations
Improve access to business credit
We welcome the Government’s plans to
improve the availability of credit for small
businesses who want it, which includes
extending the Funding for Lending Scheme for
a further twelve months. However, it is clear that
more needs to be done to make business credit
viable, and in particular in encouraging banks
to make business credit available to break the
dependency on personal finance being used
to bridge the gap.
Improve access to business banking facilities
Whilst some businesses can successfully
operate using non-business (personal) bank
accounts, we would like to see increased
availability of accounts for those wishing to open
a separate business banking facility. Products
designed to help small businesses to keep
track of finances, produce business plans
and cash-flow forecasts, and submit accurate
tax returns can offer tailored support to the
self-employed but these accounts are often
unavailable to those with any history of payment
problems. We would welcome efforts to
develop a widely available basic business
bank account to overcome this issue.
Following the financial crisis, the Financial Conduct
Authority was concerned that lenders were making
it too easy to get a mortgage. They introduced new
rules under the ‘’Mortgage Market Review” in April
2014, with a view to ensuring that mortgages are
affordable for people both at the point of lending
and in the future.
Mortgage lenders now require people to provide
evidence of income which can be difficult for
self-employed borrowers. Their income figures can
fluctuate significantly from month to month rather
than being a fixed amount like an employed person’s
basic salary. This means that people with businesses
need to show the potential lender their business
accounts, signed off by a chartered accountant,
and tax returns over a two or three year period. The
lender may also ask for business projections as well.
All these types of evidence can be difficult for some
small businesses to provide.
Develop tailored products and services
for micro-businesses
Some businesses are at risk of falling below
the radar because they are especially small
and the option of business banking may not
be practical or suit their needs. We would
encourage the banking sector to pro-actively
reach out to customers who are operating
these micro-businesses to offer support and
help them succeed.

Money Advice Trust
7. Building success
For many of the self-employed people that contact
Business Debtline, their business is still viable,
and continuing to trade is a major driver. For these
people, getting advice can help them to feel more
confident about the future as well as giving them the
practical skills to get the business back on track.
The current economic climate presents many
businesses with opportunities. Low inflation along
with lower energy costs are bringing down the
bottom line, resulting in the lowest-ever proportion of
businesses reporting a year-on-year increase in costs.
“There is nothing more scary
than being in debt. Your
service gives hope.”
A significant number of small businesses are also
anticipating growth over the next twelve months and
more are expecting to take on new employees as a
result. In turn, many are hoping to pass on the benefits
of rising productivity to their staff in the shape of
increased pay and rewards.
We believe that by supporting the self-employed and
small business through services such as Business
Debtline we can help them to join the legion of other
small businesses who report that they are feeling
more optimistic about the future 39 .
39. Federation of Small
Businesses, ‘Voice if
small business’ Index
Q1. 2015
27

Real stories: Helen, the mobile food seller
Real stories:
Helen, the mobile food seller
Helen is a sole trader based in the
north-east. She has a mobile food
van that she takes around industrial
parks and has been trading for over
15 years. She has put a lot of work
in over those years and is very
passionate about the business.
Helen had never experienced any
difficulty with the business so it was
quite a shock to find that she was
experiencing a trade shortfall. Her
bank had called in both her business
overdraft of £20,000 and a personal
overdraft of £5,000, leaving her
without a business cash flow or
banking facilities. In addition to
the overdrafts, she also had credit
cards totalling £12,000.
Business Debtline advised Helen to
open a new safe bank account for the
business and her personal finances,
and talked through her options for
dealing with her debts. They also
went through a business budget
sheet and helped her with assessing
the viability of her business.
Following the advice from Business
Debtline, Helen was able to open a
new personal basic bank account
quite quickly, but unfortunately
she was turned down for business
banking. This meant she has had to
use a personal account for business
purposes, making record keeping
very hard. Despite this, Helen feels
much more confident about the
future and is determined to trade on.
She has made offers of repayment
towards her debts and is waiting
to hear back from her creditors.
Helen feels much more confident about
the future and has made offers of repayment towards
her debts and is waiting to hear back from her creditors.
The cost of doing business: Supporting small businesses and the self-employed. 28

Money Advice Trust
8. Our recommendations
The role of small businesses in supporting the UK’s
economic recovery is evident. The unprecedented
increase in the numbers of self-employed people
presents an opportunity to ensure that the necessary
support is in place to help them to continue to trade
and prosper. The benefits of the Government,
regulators, creditors and the advice sector coming
together to achieve this are clear, both for small
businesses and the UK economy. We look forward
to exploring further the recommendations set out in
this report with stakeholders in 2015 and beyond.
8.1 Recommendations for government
a) Improve access to support and information:
Despite the availability of some advice for
businesses, some people are still starting a
business without the necessary background
skills to be able to operate it effectively. The ‘I’m a
good plumber but useless at paperwork’ approach
stores problems up which inevitably rise to the
surface later down the line. Since the demise
of Business Link, efforts have been made to
make information available to help self-employed
people (for example via GOV.UK and Great British
Business) but it doesn’t sufficiently replace what
was lost. More needs to be done to provide and
promote the availability of free, independent
advice and support to help people throughout
the life-cycle of their business.
b) Tackle late payments: We welcome the
Government’s plans to consult further on measures
to tackle late payment by large firms. We know that
late payments can have a devastating impact on
those small businesses least equipped to cope with
the resulting cash -flow problems. The proposals
to oblige large and listed companies to publish
detailed information about their payment practices
will hopefully take a step towards achieving this.
However, companies are free not to sign up to the
voluntary Prompt Payment Code, weakening the
intentions behind these measures. We would like it
to be mandatory to sign up to the code rather than
voluntary. We would like to see thought given to
penalties for breaching the code, including the
automatic application of interest in the case of late
payment. We would also like consideration to be
given to ways of empowering business owners to
reduce the likelihood of late payments by helping
them to improve their contracts and factor in
reasonable contractual payment terms, including
raising awareness of the need to do this when
negotiating contracts, and considering a ‘fair
contractual payment terms’ standard.
c) Improve access to business credit: We welcome
the Government’s plans to extend the Funding for
Lending Scheme and provide additional money
to support the British Business Bank. Whilst many
businesses operate successfully using personal
credit products, it is clear that more needs to be
done to make business credit viable. In particular
encouraging banks to make business credit
available will help to break the dependency many
small businesses have on using personal credit
to bridge the financial gap.
d) Support with real-time accounting: While we
welcome the abolition of the annual tax return
announced in this year’s budget and the
modernisation in the tax system, this will be a
significant upheaval for the self-employed. It is vital
that the Government ensure that the self-employed
are given the advice they need to manage this
transition to real-time accounting, and that any
penalties for missed deadlines are proportionate.
e) Explore options to develop new debt support
solutions for small businesses: The Business
Debt Arrangement Scheme in Scotland allows
debts such as VAT and PAYE arrears, as well as
debts to other creditors to be repaid whilst a
business maintains the on-going credit facilities
which are often essential for survival. Under
the terms of the scheme, monthly payments
are agreed, and creditors must freeze interest
and charges and cannot take further action to
29

8. Our recommendations
enforce payment of the debt. The scheme also
protects assets, including the family home. It is
reviewed annually and can last up to 5 years.
We recommend that the impact of this scheme
is monitored, and options to create a similar
scheme for England, Wales and Northern Ireland
are explored.
f) Ensure the current business rates review
includes financial difficulty in its remit: We
welcome the current review of the business rates
regime. It is crucial that the review considers how
the rates system can be used to better support
small-business owners who are struggling,
including those in temporary difficulty. For example,
many councils run hardship relief schemes, but
there is a need for greater provision of rate relief to
help businesses weather rough periods of trading.
g) Improve data in official statistics on self–
employed incomes: Self-employed workers are
not included in most official income statistics. With
close to 5 million people who are self-employed, it
is vital that comparative and timely data on average
incomes of this group is captured to inform policy
making. The move to real-time accounting may
facilitate this.
8.2 Recommendations for creditors
and utilities companies
a) Extend creditor best practice to include small
businesses: In recent years there have been
improvements in the way creditors approach
debt and financial difficulties, but too often
small businesses receive different and less
positive treatment for no necessary reason.
There now needs to be a focus on ensuring
that best practice approaches are applied to
small-business customers wherever possible.
Precipitate creditor action can jeopardise
the survival of viable businesses, leading to
detriment all round. In particular, priority
creditors such as utility suppliers and HMRC
should ensure that they take into account
individual circumstances, base debt
repayments on affordability and develop
proactive best practice strategies for dealing
with financial difficulty.
b) Improve access to banking facilities including
a new basic business bank account: Whilst
some businesses can successfully operate using
non-business (personal) bank accounts, we would
like to see increased availability of accounts for
those wishing to open a separate business banking
facility. Products designed to help small businesses
to keep track of finances, produce business plans
and cash -flow forecasts, and submit accurate
tax returns can offer tailored support to the
self-employed but these accounts are often
unavailable to those with any history of payment
problems. We would welcome efforts to develop
widely available basic business bank account to
overcome this issue.
c) Develop tailored products and services for
micro-businesses: Some businesses are at risk of
falling below the radar because they are especially
small and the option of business banking may
not be practical or suit their needs. We would
encourage the banking sector to pro-actively
reach out to customers who are operating these
micro-businesses to offer support.
d) Encourage energy suppliers to pass on savings
to business customers as well as domestic
customers: When energy companies announce
that they are passing on reductions in wholesale
prices to their domestic customers, all too often
small businesses fail to reap the benefits. Energy
companies’ failure to pass on price cuts to
domestic customers often makes big news but
the same unfair treatment extended to smallbusiness
customers receives little attention.
We would like to see small-business customers
treated in the same way as domestic customers,
with reductions in wholesale costs being passed
on through lower energy bills.
8.3 Recommendations for support
organisations
a) Encourage a support-seeking culture: We would
like to work with business support organisations
to pro-actively encourage self-employed people
to seek support and advice throughout the life
cycle of their business. In particular, we would
like to ensure that those experiencing financial
difficulty are signposted to Business Debtline to
get the help that they need to tackle their debts
and manage their finances.
The cost of doing business: Supporting small businesses and the self-employed. 30

Money Advice Trust
9. Tips for the selfemployed
and small
business owners
a) Get advice early to help you deal with the
problem: It is never too late to get support but
the sooner you start to tackle your debts, the
better. Business Debtline offers free, expert,
professional debt advice for people across
the UK. We are a unique service and help the
self-employed and small businesses deal with
their debts in an informed and active way.
b) Do a business and household budget: It is an
essential tool to help you tackle debt problems.
Whether you are a sole trader, a partner in a
partnership or director of a limited company,
it is important to assess your income and
expenditure and ensure your overheads are
proportionate to your income. This will also help
you to identify where you may be able to cut
costs and increase profitability margins in order
to maximise the wage you can draw.
c) Make sure you have explored all of the options
to maximise your income: Many people are in
debt because they don’t receive all the money
they are entitled to. You may be able to claim
benefits or tax credits as well as help with
energy costs along with other ways of boosting
your business and household income. There
can be a lot of confusion about the benefits you
are entitled to if you are self-employed and it’s
always worth getting expert advice to guide you.
d) Not all debts are equal: If you have arrears on
personal or business priority debts such as
a mortgage, rent or utilities, council tax or
business rates and you want to continue trading
it is important to pay these before credit debts
like loans and credit cards. Getting debt advice
will help you to find a way to deal with your debts.
e) Complete your tax and other returns on time:
This will avoid you incurring penalties and additional
costs. If you can’t afford an accountant because
you have a low income there may be other ways
you can access help with your paperwork.
f) ‘Put aside’ for your pension: Even if you are
struggling with debt it is important that you account
for making Class 2 National Insurance contributions
when you do a budget. This will mean you can keep
up the payments that you need to be entitled to
a state pension when the time comes, as well as
contribution-based benefits.
g) Open up a business bank account: This will help
you to keep your finances separate and avoid
money you need for your personal household
being swallowed up by the business.
h) Think carefully before propping your business
up with personal credit: It can make business
finances confusing. Advice can help you to
keep them separate from the business.
i) Get help deciding whether your business is
viable: Whilst many businesses can continue to
trade, for some this is not a realistic option. Many
people find this a hard decision to make, and it
can be a daunting task to disengage from the
business and look at the alternatives. Getting
advice can help you to identify if there is a
realistic and workable plan to get your business
back on track. If the business is no longer viable
it is important to know how to wind it up.
j) Don’t put your head in the sand: Although it may
be tempting to avoid contact with creditors this
is rarely the best option and can make things worse.
Get advice early!
31

For more information about this report:
Call:
020 7653 9733
Email:
policy@moneyadvicetrust.org
Website:
www.moneyadvicetrust.org
Write to us:
21 Garlick Hill London EC4V 2AU
The cost of doing business: Supporting small businesses and the self-employed. 32

Money Advice Trust
Money Advice Trust
The Money Advice Trust (MAT) is a charity
formed in 1991 to help people across the
UK tackle their debts and manage their
money wisely.
www.moneyadvicetrust.org
www.businessdebtline.org
www.mymoneysteps.org
www.nationaldebtline.org
www.wiseradviser.org
Money Advice Trust is a registered charity number 1099506.
A company limited by guarantee. Registered in England and Wales, number 4741583.
Registered office: Money Advice Trust, 21 Garlick Hill, London EC4V 2AU.
© Money Advice Trust 2015.
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